Hidden Costs That Make Buy To Let So Expensive

by Neil Patterson

8:05 AM, 6th September 2011
About 9 years ago

Hidden Costs That Make Buy To Let So Expensive

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Hidden Costs That Make Buy To Let So Expensive

The cost of buying a rental home is set to rise again as banks and building societies tighten their grip on hidden fees

New rules culling the number of property professionals that can act for buyers mean choice of lawyers and valuers is limited.

Lenders claim the move is to fight fraud because property professionals, including mortgage brokers, are often involved in easing paperwork through for bogus loan applications.

But for buyers who want to instruct their own solicitor or valuer, the price of processing a mortgage is often doubled and the transaction slowed down by introducing another layer of professionals.

The move is seeing hundreds of small firms of property professionals leave the market as fraud claims have pushed up the cost of indemnity insurance that makes dealing with a low number of purchases uneconomical.

Many family firms or small partnerships that have serviced landlords buying rental property for years are finding clients are shifting to larger rivals on the lending ‘approved list’.

“There has been a significant amount of fraud and loss to lenders and their clients out of conveyancing in recent years,” says the Council of Mortgage Lenders, the trade voice for banks and building societies.

The effect for landlord is mortgage lenders now control the market – buyers either deal with the professionals they dictate or hire two lawyers or valuers to duplicate work.

Add to that massive booking and administration fees – generally around £1,000 but sometimes up to 3.5% of the loan – and buy to let mortgages and remortgages are costing more even though headline interest rates at their lowest for some time.

The industry fears that the buy to let and residential mortgage markets will end up with firms of ‘super’ conveyancers and valuers as the number of firms contracts.

The Law Society has already started a new accreditation scheme for conveyancers. Behind the scenes, industry professionals suggest that this was in response to a tarnished reputation after several high profile mortgage fraud cases involving lawyers.

Valuers have also faced a torrid time in court defending claims of misstating property prices and rental yields during the buy to let boom years.


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Comments

11:32 AM, 9th September 2011
About 9 years ago

The article is misleading: when I put an offer on a property, the AGENT asked me who my solicitors and brokers are. The phone went silent for a few moments, then came the reply "Yes, they're on our list". This implies that you can source your own professionals and the lender will use them if they're on their books - you don't use the professionals they provide except for the surveyor where you have no say over which one to use and pay the fee they ask for or abandon the purchase.

After the debacle that led to the credit crunch, I don't blame them for it. It was the surveyors/valuers who over-valued properties in the first place but some brokers and solicitors/conveyancers also colluded in this to get as much commission as they possibly can without a care of how the mortgages will be repaid. After all, it's not them that'll repay them.

In the insurance industry, although the sales people get commission, it's clawed back if the pull out within a certain period. Can't the lenders operate a similar strategy? It works, somewhat, for the Insurance industry.


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